Entire TAP SGPS board steps down. Azul says “breach of contract” is being prepared

The governing bodies of TAP SGPS, which has been renamed SIAVILO SGPS, resigned between the end of March and the beginning of June, including the supervisory board and the statutory auditor. After being stripped of its assets, the company to which Azul claims a debt of 177 million euros was left without management and no replacements have been appointed.

This is yet another sign that SIAVILO, which is 100% state-owned, may cease to exist and not pay the amount sought by the Brazilian airline.

Gonçalo Pires (TAP’s financial director), Patrício Castro, Ana Lehmann and João Pedro Duarte were the first directors to resign on 31 March, according to the corporate documents consulted by ECO. On the same date, Maria de Fátima Geada and Baker Tilly, members of the supervisory board, stepped down. This was followed by Mário Chaves, Mário Cruz and Sofia Lufinha (executive directors of TAP) on 30 April and, finally, on 6 June, the resignation of the statutory auditor, PwC – PricewaterhouseCoopers & Associados.

No information has been published on the appointment of replacements for these positions. ECO questioned the Ministry of Finance, but received no reply by the time this article was published.

The resignation of the governing bodies follows the asset stripping of the former TAP SGPS. Following the 3.2 billion euros of state aid injected during and after the pandemic, the holding company ceased to have any stake in TAP SA, which owns the airline, in December 2021. In January of this year, the sale to TAP SA of 100% of Portugália for 4.4 million euros, the 51% stake held in Cateringpor and 100% of UCS was announced.

The stake in the handling company formerly known as Groundforce, now Menzies Aviation, was also cancelled as part of the insolvency process. The remaining subsidiary, M&E Brasil, was put into liquidation after several years of chronic losses.

A source at Azul told ECO that “the breach of contract is being prepared, since TAP SGPS, after handing over the assets, namely to TAP S.A., has become an empty shell”.

“TAP is being divided into ‘bad TAP’ (TAP SGPS, now called SIAVILO SGPS), which has no assets to meet the debts it has taken on from private creditors (namely foreign investors) who lent it money in good faith, and ‘good TAP’ (TAP S.A.), which will be privatised”, adds the same source, who accuses the Portuguese state of “agreeing to illicit attempts to discriminate against private creditors and to evade the obligations it freely assumed”.

Non-fulfilment obliges repayment of debt

The dispute between the two airlines dates back to last summer, when Azul, in financial difficulties, suggested early repayment of the 90 million euro bond loan subscribed in 2016, when David Neeleman was a shareholder in both companies and CEO of the Brazilian carrier. Parpública also took part in the operation, providing financing totalling 30 million euros.

Azul also asked for confirmation of the loan guarantees, which include TAP’s miles programme (formerly Victoria, now Miles & GO). The Portuguese carrier and the holding company refused and went to court, asking for the guarantees to be cancelled on the grounds that it was a shareholder loan.

The Brazilian company disputes this interpretation and points out that, in 2016, “Azul was not a shareholder of TAP SGPS or TAP S.A. and there is no reason to disqualify the personality of legal persons even when they had, for a short period of time, a common partner”. He even considers the actions of the Portuguese companies “an example of a school of bad faith”.

The case took a new turn on 15 April, when it was decided that TAP SGPS had defaulted on its debt payments, at an extraordinary meeting of bondholders called by Azul.

It was also decided, with the votes in favour of the Brazilian company (75%) and against of Parpública (25%), to immediately repay the bonds, with the common representative — the Valencia-based company Bondholders — being responsible for calculating the amount owed and collecting it.

Banco Montepio sent a payment note to the parties involved on 27 May, with a deadline of 30 working days, according to Jornal de Negócios. Taking into account that the bonds have a compound interest of 7.5%, to be repaid with the capital at maturity, Azul is owed 177 million euros and Parpública 58.4 million. If the amounts aren’t paid, the joint representative could go ahead with enforcement proceedings in the Portuguese courts.

The controversy surrounding the payment of the debt to Azul comes at a time when the government is preparing to go ahead with the privatisation of TAP, a process that was interrupted with the collapse of the Executive in March. The Brazilian company says it has already alerted those interested in the operation — the IAG Group, Lufthansa and Air France KLM — to the existence of this dispute.

Azul, meanwhile, continues to experience financial difficulties and this month filed for creditor protection in the US. In this context, it signed a 1.6 billion dollar financing agreement with United Airlines and American Airlines. The former has had a partnership with Lufhtansa on transatlantic flights for several years and both are members of the Star Alliance, to which TAP also belongs.

David Neeleman’s time at TAP was also shrouded in controversy. In addition to the Azul bond loan, the most expensive ever taken out by the Portuguese carrier, TAP leased aircraft from the Brazilian company to be used by Portugália. The businessman left TAP in 2020, receiving 55 million for his 22.5% stake.